Tax dispute could delay ESU dorms until 2014

The opening of a new 500-bed residence hall at East Stroudsburg University has been delayed by a full year because of ongoing arguments about whether it is exempt from property taxes.

CHRISTINA TATU

The opening of a new 500-bed residence hall at East Stroudsburg University has been delayed by a full year because of ongoing arguments about whether it is exempt from property taxes.

"We would have been building by now and opening next fall if we didn't have the tax appeal," said Richard Staneski, vice president of finance and administration.

Now officials are projecting the residence hall won't be ready until September 2014, "and that's if we are very lucky," Staneski added.

University Properties Inc., a nonprofit corporation created by ESU to build the residence hall, has argued for three months that it meets legal requirements for tax exemption by donating at least 5 percent of revenues back to the university and providing free rooms for student dorm advisers.

On Dec. 5, University Properties Inc. was granted tax exemption by the Monroe County Commissioners, saving about $650,000 annually.

East Stroudsburg Area School District and East Stroudsburg Borough contend the request is an elaborate tax avoidance scheme and that students are paying for the donations through higher room fees.

The project could be further delayed — or even canceled — if the school district or borough decides to appeal the commissioners' decision, Staneski said.

East Stroudsburg School Board members will meet in executive session tonight to discuss whether they plan to appeal, said school board Attorney Chris Brown.

School board officials will vote during public session on the appeal.

"I think there is probably going to be an appeal," Brown said.

East Stroudsburg Borough Council will meet Tuesday to discuss a possible appeal in executive session.

"I think we acknowledge it would be a difficult thing to do, but again, that's up to the borough council," said East Stroudsburg Borough Administrator Jim Phillips.

The school district and borough have until Jan. 3 to make a decision, or 30 calendar days from the commissioners' Dec. 5 ruling.

"If they appeal and win that appeal, our students are going to end up paying a lot more money to live in those residence halls, and I'm not sure we will be building them," Staneski said.

Staneski wasn't entirely sure how much more students would pay for rent if the exemption were successfully appealed.

The old Hemlock and Hawthorn halls were torn down in July.

Instead of continuing on to dig the foundation for the new residence hall, workers hauled away the debris, flattened out the construction site and put up protective fencing to make sure it wouldn't become a safety hazard.

"There were holes in the ground and pieces of material lying around. It just wasn't a safe environment. Not only that, it was an eyesore. We had to make it safe and approve the aesthetics of it," Staneski said.

"One thing is very clear: The county commissioners' tax appeal board carefully considered an awful lot of facts, and they ruled that we are tax exempt. You would think that would put the university in a strong position relative to that decision, but you just don't know," Staneski said.

"Several universities within the state system have had the tax-exempt status challenged on certain buildings," said Kenn Marshall, a spokesman for the Pennsylvania State System of Higher Education, which oversees the 14 state-owned universities.

The first challenge was in 2009 and involved a housing facility built by a nonprofit organization at Lockhaven University.

In each case, the court system ruled the buildings were indeed tax exempt because the organizations set up to build them were nonprofit or charitable, Marshall said.

Emily Leader, an attorney with the Pennsylvania School Boards Association, says the PSBA doesn't have a stance on nonprofit tax-exempt status.

"It's really not a legislative issue. It's very fact-driven," she said. "The statute is what it is. If it's truly a public charity, and the use is to primarily benefit the students and it's not competing with private interest, then it's not going to be taxed."

If the proposed residence hall is not constructed, it would limit the university's potential for growth, Staneski said.

"It's the mechanism we've been given by the state to build student housing," he said of the nonprofit, tax-exempt status. "It has nothing to do with taxes, except that if it is taxable, it costs considerably more to build it, in which case you can't make enough money to make it work."

The plan was to install the first 500-bed residence hall, and eventually add a second 500-bed facility.

The entire project is estimated to cost a maximum of $50 million, "but should be less than that," Staneski said.

The two proposed residence halls would complement the new Hemlock Suites and Hawthorn Suites that opened in January.